Investing Lessons from the Wealthy

  By Daniel Bloom
Daniel Bloom

Each year, the IRS publishes data about the estate tax returns filed with the government. Estate tax returns are required by people who have relatively larger estates. But can we all learn something from these returns?

Here are three interesting statistics:

1.    California had the highest number of estate tax returns in 2012, followed by Florida, New York, Texas, and Illinois.

2.    In these returns, stock and real estate made up about half of all the decedents’ holdings.

3.    Estate tax decedents with total assets of $20 million or more held a greater percentage of their portfolio in stocks and lesser percentage in real estate and retirement assets.

Isn’t that interesting—the larger the estate, the more the stock holdings. Is there a lesson that can be learned from this?

Although I believe some people should not own stocks in their investment portfolios, I believe that some have a fundamental misunderstanding of risk. With the availability of index mutual funds and exchange traded funds, we have the ability to participate in the broad overall stock and bond markets without the risk of a concentrated portfolio of securities. Unfortunately, because of the financial media’s love affair with daily market volatility, some people conclude that owning a portfolio with stocks and bonds is inherently too risky. Although this is certainly true for anyone who has a short-term time frame, this is probably not the case for many people who have a longer-term time frame.

It is time for each of us to take a lesson from these federal estate tax returns and learn how a diversified portfolio may be a sound way to build wealth over the long term.

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